January 2018 Investor Report

Published: January 4, 2018Updated: April 25, 2019

During the month of January our performance continued to be positive, consistent with headlines of companies reporting benefits from recent federal tax cuts. As always, we will summarize a few of our most widely‐held investments on the following pages, but at the outset we wish to discuss an interesting development that occurred during the last week of January. The Dow Jones Industrial Average saw a precipitous drop of over 500 points (approximately 2% loss) in one 48‐hour span. This marks one of the worst two‐day performances is recent history. The plunge provided a jarring reminder to many that, as kind as the markets have been over the last seven years, they can be equally (and swiftly) unkind. Last week’s brief upset is all the more noteworthy as it was accompanied by a report by Goldman Sachs, released on January 29, forecasting a market correction in the immediate future—and most likely during this calendar year. As investors, we remain vigilant against such unexpected changes in investor sentiment.

In other arenas, the government shutdown was brief and “the can was kicked down the curb” to February 8. We intend to monitor the manner in which a Congress with record low popularity levels handles the looming possibility of another government shutdown. Gold and silver are two investments that we have been monitoring over the last two to three years and while we have not invested fully in the precious space, we are getting closer to making a commitment.

On the Treasury side, Secretary Steven Mnuchin, has advised US business leaders to look for a weaker US Dollar. We have considered investing in precious metals for the last three years and believe Mr. Mnuchun’s announcement may herald that the time has come to make the commitment. This is further born out by a spike in prices on January 24, when gold and silver increased 1.4 and 3.1 percent, respectively. Likewise at Treasury, the ten‐year US Treasury note has seen meaningful appreciation over the past three weeks. As the interest rates of the two‐year and ten‐year US Treasuries rise, the cost of capital will increase. As the famous “Quantitative Easing” policies of the last ten years helped boost up asset prices with low interest rates, the opposite (Federal Reserve induced interest rate rises) are beginning to manifest. This would have a capping effect on asset prices even as the economy is starting to show meaningful growth prospects.

As our leaders and politicians tout current successes and projected economic growth, there is an important metric to follow closely as interest rates rise: the Labor Participation Rate. Often the unemployment rate is cited as the sole indicator of the health of the job market and economy; this is overly simplistic. As we have said for years, the unemployment rate can be misleading. When many people see the unemployment rate declining, the assumption is that previously unemployed workers are getting jobs, moving from unemployment to employment. As a result of this event, the number of unemployed would decline, while the size of the labor force would stay the same. But the unemployment rate could decline in other ways. For example, an unemployed worker could drop out of the labor force, reducing the size of both the number of officially unemployed workers and the labor force. This would also lead to a decline in the unemployment rate. Over time as more people leave the workforce, it can have a material impact on the popular economic metric. As it stands now, the labor participation rate is at multi‐decade lows. Our leaders in Congress and working with the President must resolve this. We will continue to track their progress and provide our investors with a clear picture of these important developments.

As always, please feel free to reach out to us with any questions that you may have. We are grateful for the trust that you place in us.